Cisco Acquires Israeli Video Software Firm NDS for $5 Billion
Update: This deal was just confirmed by Cisco, which moments ago pushed out a press release. I've embedded the text below and will revise the post momentarily. — Networking giant Cisco Systems is said to be in advanced talks …
Context & Ripple Effects
This is the third and by far the largest move in Cisco's video software build-out: after the ExtendMedia acquisition in August 2010 and the $95 million Inlet deal in February 2011, Cisco jumps from tuck-in engineering buys to a $5 billion platform purchase of NDS, its biggest bet yet on selling video technology to service providers rather than consumers.
The timing frames the strategy. Weeks after Cisco quietly shut down Umi, its consumer home videoconferencing system, in January 2012, it is redirecting capital toward carrier-grade video software. The story also traveled unusually far on day one — confirmed by Cisco itself and picked up by Reuters, the Wall Street Journal, Bloomberg, DealBook, MarketWatch, InfoWorld and The Register — signaling how much weight markets put on Cisco's post-consumer direction.
First-order effects
- Cisco's service-provider video portfolio absorbs NDS outright, giving Cisco an installed base of pay-TV operator customers and a credible answer to 'why buy video from a networking vendor.'
- NDS's owners and employees exit at $5 billion, and NDS's product roadmap now folds into Cisco's video business unit rather than competing alongside it.
Second-order effects
- Standalone video software vendors face a competitor that can bundle conditional-access-style software with Cisco's switches and routers, putting pressure on per-operator licensing prices across the pay-TV supplier market.
- Operators weighing vendor consolidation gain an end-to-end single-supplier option, which pushes rival equipment makers toward their own video software acquisitions to avoid being disintermediated.
Third-order effects
- The Umi shutdown plus this purchase sketches a structural split: consumer video products die while carrier video becomes an attach to core infrastructure sales — networking vendors repositioning as media-software suppliers.
- If equipment makers keep buying video stacks, pay-TV software consolidates around a handful of infrastructure giants, shrinking the space for independent middleware firms.
The trend: Telecom equipment makers are acquiring video software companies to sell carriers end-to-end TV delivery, turning video from an application running on the network into part of the infrastructure sale itself.